Recent changes have been made to the Ontario legislation that deals with estate administration tax. Some of the provisions are in force now, and some will come into force on January 1, 2013 (or at a later date, as determined by the Minister of Finance). Why should anyone care about changes to the Estate Administration Tax Act? Because the changes represent a shift in the manner in which estate administration tax is collected and assessed, which, in turn, will have an impact on the structuring and administration of an estate plan.
Background: The Estate Trustee and the Certificate of Appointment of Estate Trustee With a Will
One of the main duties of an executor and trustee (“estate trustee”) appointed under a will is to administer the assets that belonged to a deceased individual in accordance with the terms of that person’s last will. In many cases, before an estate trustee can begin to deal with the assets, additional proof is required that the estate trustee has the authority to act. That proof is provided by way of a document called a Certificate of Appointment of Estate Trustee with a Will (formerly a “probated Will”).
In order to obtain the Certificate of Appointment of Estate Trustee with a Will, the estate trustee must:
• make an application to the Court; and
• pay an estate administration tax (“probate tax” or “probate fee”).
With respect to the application, the estate trustee provides to the court a dollar figure which comprises the total value of the assets of the estate and swears an affidavit that the value reported is true to the best of his knowledge. No supporting documentation is currently required.
The estate administration tax payable is based on the value of the assets of the estate at the date of death of the deceased. The amounts payable are:
• $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
• $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000,
which translates, roughly, into a 1.5% tax.
Changes to the Estate Administration Tax Act
Some of the amendments to the Estate Administration Tax Act include:
• the power of the Minister to reassess the estate for payment of estate administration tax for up to four years after the tax becomes payable or a longer period of time if there has been “neglect, carelessness, or wiful deceit” or fraud in the reporting of the tax owing;
• the requirement that records be kept by the estate trustee that will allow for the accurate determination of estate administration tax;
• the requirement that the estate trustee provide more detailed information with respect to the assets of the estate. As of the date of this article, no guidelines with respect to what type of information will be requested has been provided yet; and
• a new provision that provides that an estate trustee could be fined or imprisoned for “failure to comply” with the terms of the Act or for misrepresentation of the information provided on the application of a Certificate of Appointment of Estate Trustee.
Some of the changes are already in force; some will come into force at a later date, as determined by the Minister of Finance.
Potential Impact of Changes on Testators, Estate Trustees, and Beneficiaries
As more detailed information about the assets of the estate will be required in the future, someone putting in place an estate plan should consider keeping a complete and up to date inventory of assets and liabilities in order to make the work of the estate trustees a little easier. Delays in applying for the Certificate of Appointment of Estate Trustee can be shortened because the information needed will be accurate and readily available.
In addition, in light of the potential penalties that could be levied against an estate trustee, it is important for individuals to think carefully about whom they would like to appoint to administer their estates. It is likely that, since the obligations of an estate trustee have become more onerous to fulfill, fewer individuals will agree to act when the time comes. Including the power to pay themselves executor compensation or providing an estate trustee with the ability to hire professionals to assist them with their responsibilities may lessen the risk that an estate trustee will renounce his appointment.
Beneficiaries of estates can also expect potentially smaller inheritances and delays in receiving said inheritances, as estate trustees will now need to be able to provide supporting documentation for the value of the assets of the estate or face reassessments and penalties. This means that, for estate assets with significant monetary value, such as real estate or antiques, formal appraisals or valuations may be required. This will take time and money. Additional expenses to the estate will also be incurred as it is highly likely that estate trustees will seek additional professional guidance in order to decrease their exposure to personal liability.
In short, all wills in Ontario will be subject to the changes to the Estate Administration Tax Act to the extent that the estate trustee needs to obtain a Certificate of Appointment of Estate Trustee with a Will. The changes will affect all those involved in the estate after someone’s death. Therefore, it is important for everyone to review and, if needed, revise their overall estate plans in order to reduce the delays and extra expenses that the amendments will cause.
Susanne Greisbach is an Associate with BrazeauSeller.LLP. She practices in the areas of Wills, Estates and Tax Law. To contact Susanne, please go to www.brazeauseller.com or email Susanne at firstname.lastname@example.org.